Why activist investors are targeting the tech industry

Activist investors have historically avoided technology. It’s a growth industry that usually has high valuations. Plus, the technology business is complex and fast-moving — leaders need a vision of the future, not financial engineering and cost-cutting expertise.

But as the mature, consolidated industry ages, activists are increasingly drawn to tech giants. More importantly, they’re increasingly getting results. Yesterday eBay and PayPal enjoyed a successful split, appeasing agitator Carl Icahn. H-P’s massive upcoming breakup was praised by activist Ralph Whitworth. And last night we learned Qualcomm is likely to succumb to Jana Partners, with an announcement of a strategic review and possible break-up expected.

There’s even an activist investor known for exclusively targeting the tech industry: Jesse Cohn, of Elliott Management, who appeared on Fortune’s 40 under 40 list last year. At the time he had led more than 30 campaigns against companies like Compuware CPWR, BMC Software and EMC EMC.

If it feels like there’s a new activist situation in tech every month, it’s because there almost is. S&P Capital IQ calculates that between 2005 and 2010, only 11 public tech companies with market caps higher than $1 billion dealt with activist investors. Just two per year. That increased fivefold over the following four and a half years, with 50 activist investor situations taking place between 2010 and mid-year 2015.

The “urge to merge” is dead, in tech at least. S&P is calling this the era of “unrest to divest.”

Beyond big break-ups and spin-offs, growing companies with lots cash on hand are vulnerable. See Icahn’s agitating with AppleAAPL for ever-more share buybacks. Apple issued an $80 billion share buyback program; Icahn wants $50 billion more. “The company’s enormous net cash position continues to grow while the company’s shares are still dramatically undervalued,” he wrote in an open letter to Tim Cook in May.

Google GOOG, which has nearly $70 billion in cash on hand, recently hired itself an activist-savvy CFO in Ruth Porat. She was previously CFO of Morgan Stanley, which fended off activist investor Dan Loeb of Third Point Capital. In 2013, Loeb supported the company’s turnaround efforts while criticizing its high executive pay. Of course, Google’s best defense against activists is its unique dual-class stock set-up, which gives its founders more control over the company than common stock owners.

ConAgra to dump private label business after pressure from activist investor Jana

Less than two weeks after activist hedge fund Jana Partners announced it had taken a 7.2% stake in ConAgra Foods and started agitating for change, the food maker said on Tuesday that it would sell off its money-losing private label business to better focus on its core brands.

The decision will undo the hard-fought $5 billion acquisition of Ralcorp after only two and a half years, jettisoning a deal ConAgra had repeatedly called “transformational.”

But undoing the private label business will free ConAgra of a segment that has been a huge drain on results of ConAgra, best known as the maker of Chef Boyardee and Orville Redenbacher, to the tune of $2 billion in write downs since the deal closed in early 2013. Even at the time of the deal many analysts were skeptical, saying that the private label segment in foods had peaked.

In the three months ended March 31, ConAgra’s private label sales were $1 billion. That was down only slightly from a year earlier, but with the added benefit of an extra week in the quarter. The segment posted an operating loss of $25 million.

“As I have intensely studied the situation in our private brands operations over the last few months, it has become clear that the time and energy the company is devoting to the private brands turnaround represent a suboptimal use of our resources,” said CEO Sean Connolly in a statement. “To prevent further distraction, we are pursuing the divestiture of our private brands operations.”

Earlier this month, Jana pressured ConAgra to change its board, pointing to the chronic, enormous difficulties the company has had integrating Ralcorp, and lack of top executives with experience in private labels. The hedge fund seems to be getting ready for a fight with the company.

In its most recent quarter, ConAgra did better with its traditional businesses. Sales in its commercial foods segment rose 7%, helped by the Lamb Weston potato operations. Sales in its consumer foods unit increased 4%, helped by higher prices in some categories to cover commodity costs and rising sales of its Hunt’s and Slim Jim brands, among others.

Dan Gallagher is leaving his post as a Securities and Exchange Commissioner shortly. But on his way out, he had some pretty bleak words about the state of the market.

In a speech on Tuesday at a Stanford conference on corporate governance, Gallagher said he was worried about the culture of short-term thinking in Corporate America and in the market. “We are not in a happy place,” he said.

The speech was focused on the growth of shareholder activism, but Gallagher said the rise of activists was only part of the problem. He said that traditional investors push corporations to meet quarterly earnings numbers, and companies often respond with overly ambitious goals. Activists add fuel to that fire. Gallagher, though, said the move away from staggered boards, in which only a portion of a company’s directors are elected each year, was adding to the problem. That change has been pushed by advocates for shareholder activism, who think every director should stand for election each year. Gallagher criticized the SEC for playing a role in enabling these changes.

In general, Gallagher, a Republican who has tussled with activist shareholders and their proponents in the past, says that activists are driven by “the profit motive,” which he thinks is a good thing. He says he’s not convinced by the data pushed forward by either side of the debate over whether activists are good for companies. Nonetheless, he mostly thinks the SEC should get out of the way and leave corporate boards to fight their own battles with activists.

Gallagher said that the situation is not helped by the fact that institutional investors often blindly go along with activists or the recommendations of proxy advisory firms. He noted that the SEC may want to look into whether other institutional shareholders are upholding their fiduciary responsibilities to their clients, who are often long-term investors.

Gallagher suggested that institutional investors may consider offering clients an option decide in advance if they would like to vote with management, with a certain pension fund, or with a particular proxy advisory service. That would likely tip the scales against hedge fund advocates, because investors asked in advance are likely to side with management. After all, most people make investments thinking the executives who are running the business are doing pretty good, or they assume that’s the opinion of the professionals they have hired to decide where to put their money. Gallagher’s suggestion is likely aimed at reducing the influence of activists, and that may very well be what is ultimately best for investors. But handing out blind votes to management teams that might not be up to snuff seems an odd way to get there.

DuPont nearly lost its war with activist Nelson Peltz

DuPont’s recent proxy battle with hedge fund investor Nelson Peltz has been viewed as a major win for the chemical giant’s CEO, Ellen Kullman, and for corporate boards in general.

But the fight for DuPont was nearly lost. Peltz was actually much closer to winning a seat on the company’s board of directors than earlier thought.

According to a new vote tally DuPont released on Wednesday, Peltz received 46% of the votes cast in the proxy fight. The new filing showed that Peltz garnered roughly 27 million more votes than earlier thought. So did Kullman, though, who won re-election to the board by a very wide margin.

Peltz was seeking four board seats on DuPont’s board, including one for himself. The activist investor had argued publicly for more than six months that the company was underperforming and would be better off it were split into parts.

It was clear the vote was close. Peltz conceded defeat minutes before DuPont’s shareholder meeting took place in mid-May. But it wasn’t initially clear how close the vote was. Peltz would have needed 54 million more votes than he received to get on the board.

That may sound like a lot, but it isn’t. First of all, in a proxy vote, each share, not each shareholder, equals one vote. DuPont’s three largest shareholders, Capital Group, Blackrock and Vanguard, have 66 million, 56 million, and 52 million shares, respectively. Blackrock and Capital Group could have single-handedly delivered a victory for Peltz, and Vanguard certainly could have brought Peltz within an inch of the finish line.

Institutional shareholders don’t have to reveal how they voted. But it is believed, and has been reported, that Blackrock, Vanguard, and State Street, DuPont’s fourth largest shareholder, voted to keep the chemical giant’s board in place, and not add Peltz or his other nominees. Take those three shareholders out of the equation, and Peltz got 58% of the remaining vote.

Those three investment companies hold most of their shares as part of their index funds. Peltz contended that index funds weren’t as informed on the issues as active fund managers. An economics professor at the University of Michigan contends that index funds voted with DuPont because they thought Peltz’s changes would have made the company more competitive with rival Monsanto, another large holding of the index funds. Neither claim has been substantiated.

The fight between DuPont and Peltz was a heated one. You can read Fortune’sbehind-the-scenes story of the battle here. These days, most companies settle with activists by either putting them on the board or agreeing to some of their demands. Kullman decided to stand her ground and fight back, and she won.

But it may be hard to call this a total loss for Peltz. He has held DuPont stock for nearly two years and, in that time, the company has made a number of changes, including cutting costs and announcing a spin-off of a division, all moves that are in line with what Peltz has been asking for. Kullman claims that nothing the company has done in the past two years has been motivated by Peltz. DuPont’s changes have been mostly cheered by the market. The stock is up 40% in the past two years, which is better than the market in general.

Peltz may have lost, but in the fight against shareholder activism, DuPont’s close victory may only count as a draw.

DuPont, the almost 213-year-old chemical giant, won its right to remain intact, at least for now. And in the process, it dealt a blow to the growing wave of shareholder activism driven by hedge funds, which have recently become more successful at forcing companies to meet their demands.

The victory for DuPont DD came at the hands of one of the most prominent and successful activists, billionaire hedge fund manager Nelson Peltz.

On Wednesday morning, at DuPont’s annual meeting, shareholders voted to re-elect all of the company’s board members, ending a four-month, bruising proxy battle with Peltz. The investor’s fund, Trian Partners, sought to get four nominees elected to the chemical company’s board, including Peltz. Trian argues that DuPont is weighed down by excess costs and would be better off broken up, though the fund backed off that stance during the proxy fight.

At Wednesday’s shareholder meeting, in a scene that looked like it was out of the 1987 movie Wall Street, Peltz took the microphone, standing in the aisle of a packed auditorium in the main building of DuPont’s Wilmington, Delaware suburban campus. Peltz, whose Trian owns 2.7% of DuPont’s shares, said that he thought his involvement with the company had pressed it to do better, and that, regardless of the outcome of the vote, he was going to continue to apply pressure. “We have a record of making companies better and better for the long-term,” Peltz told the crowd. “We have a lot pride in DuPont and, like all of you, we want DuPont to return to greatness.”

About 20 minutes later, DuPont announced it had prevailed in the board vote. About half the room stood to give DuPont’s CEO Ellen Kullman a standing ovation. “We know there is more to do,” Kullman said. “But we think the company and this board has chosen the right path and we look forward to continuing.”

Despite the defeat, Peltz and other shareholder activists are likely to keep up the fight. Speaking after the meeting, Peltz said the DuPont defeat was unlikely to stop him from launching similar proxy fights with other large companies, if he thought it was necessary. Peltz also said that he received overwhelming support from active mutual funds and institutional shareholders. He said DuPont won because of its support from individuals and index funds, who Peltz implied were less informed about the company.

And Peltz predicted the company would disappoint shareholders again this year. “We think they are going to miss their 2015 targets as well,” he said.

The investor did not directly say whether he planned to continue to hold DuPont’s stock or whether Trian would sell its stake.

Several observers have said that the DuPont fight was evidence that shareholder activism had gone too far, and that it was threatening innovation and long-term thinking at large companies. Warren Buffett, at Berkshire Hathaway’s recent shareholder meeting, said he thought activists were pushing companies to use corporate cash for share buybacks that didn’t make a lot of sense.

Even with the loss, Peltz said that his brand of shareholder activism works. And he has a good argument. Peltz purchased shares in the company two years ago and started pushing for changes behind the scenes. Since that time, DuPont has made a lot of changes, including announcing a spin-off of its cyclical chemical businesses, setting a goal to cut $1.3 billion in annual costs and buying back $5 billion in shares. The moves have been well received by shareholders.

CEO Kullman has said those changes were not driven by Peltz, but it’s hard even for her to know what would have happened if Peltz hadn’t come along. Peltz took credit for DuPont’s recent moves on Wednesday. “We’re not the enemy. The stock is up 50% since we got involved with it,” he told me. “But you’ll find a way to turn that around and say we made it go down 50%.” Peltz was referring to a Fortune article published earlier this week that was critical of Trian’s analysis of DuPont.

The DuPont proxy battle was fought on both sides through a flurry of documents sent to shareholders and filed with the SEC, and through online and newspaper advertisements. Peltz made a number of appearances on CNBC. And Trian launched a Twitter account devoted to the fight. On Wednesday, Peltz estimated that Trian spent $8 million on the proxy contest, and that he believed DuPont spent $20 million.

At times, the battle got personal. Trian highlighted stock sales made by DuPont CEO Kullman, saying they signaled she no longer had faith in the company. DuPont questioned Trian’s investment track record, and regularly pointed out that the only other investment the hedge fund had made in the chemical industry had resulted in a bankruptcy.

Future proxy fights will likely be even nastier. Peltz said he thought that DuPont had done a better job of shaping public perception of the fight and that he would fight harder next time to get his message out. “They used scare tactics and painted us as raiders,” he said. “We’re not raiders.”

The victory means that Kullman gets to continue her plan for DuPont. Kullman’s job was never directly in jeopardy. Even Peltz’s proposed director slate included Kullman as a board member. But at times, Trian did seem to want to make the board fight a referendum on Kullman’s performance.

Kullman argued that she is in the process of transforming DuPont into a more profitable company. But at least part of her moves seem to stem from the fact that she took over the company in 2009, when many of DuPont’s most economically sensitive businesses were tanking. She has sought to move the company out of its most cyclical businesses, even if they are profitable. And that had hurt the company’s bottom line.

In a series of interviews before the vote, Kullman offered Fortune a behind-the-scenes look at her near two-year-long battle with activist Peltz. Kullman said she came from a long line of “tough-as-nails women.” Her dad would threaten to make her shoot free throws in the snow if she missed in a game. Richard Goodmanson, a former chief operating officer of DuPont and for a time Kullman’s boss, calls Kullman intensely competitive, in “sports and everything else.” “Ellen is a very strong leader in almost every dimension,” says Goodmanson.

When Kullman ran DuPont’s safety division, Matt Trerotola, who worked for her, said she was known as the toughest gatekeeper in the company. “If you got Ellen’s okay on a project, you knew it would get approved,” says Trerotola. He says she regularly made him and others defend his projects, and rank them in order or priority, and potential revenue.

Trerotola, who left DuPont a few years ago but returned last year to run the safety division, says Kullman has instituted her tough approval system throughout the entire company.

For DuPont, the proxy battle win means the company will stay mostly intact, for now. Next month, DuPont will go ahead with its planned spin-off of Chemours, a specialty chemical unit. DuPont’s earnings have been flat over the past few years. Kullman has argued profits have been dragged down by the cyclical nature of Chemours’ earnings, which peaked in 2011. Shareholders, not including Peltz, have largely given DuPont a pass because of that. But after the spin-off DuPont is likely to be under more pressure to make it’s earnings targets. And the multinational company will continue to face headwinds from a slow-growing global economy and a strong dollar, which has hurt DuPont’s sales overseas and made them less profitable.

Some shareholders are skeptical of DuPont’s prospects. Shares of DuPont were down 6% at midday on Wednesday following the shareholder meeting. And if DuPont doesn’t deliver, Peltz implied he would be back to fight again. Shareholder activism at the company is certainly not dead yet.

Nelson Peltz says he’s lost proxy war with Dupont

After a bruising four-month battle with DuPont DD, activist investor Nelson Peltz conceded defeat on Wednesday in his bid to break up the chemical giant and get four of his nominees onto the company’s board.

Peltz, whose investment fund Trian Partners has a $1.9 billion stake in DuPont, told CNBC at the company’s annual shareholder meeting in Delaware that he acknowledged Trian had lost the vote but has a clear interest in the long-term success of DuPont.

“We believe we can make DuPont great again,” he told CNBC. “Whatever the results, we’re proud of the role we’ve played as a positive change agent.”

Peltz also told CNBC that he doesn’t think DuPont will achieve its expected 2015 earnings. “We will closely monitor DuPont’s performance,” he said. Peltz himself said earlier this week that his prospects for winning the proxy war were “dim.”

A DuPont spokesman did not immediately return a request for comment to confirm the results of the proxy vote.

Trian has argued that five out of DuPont’s seven main business lines have underperformed in recent years. The fund, DuPont’s fifth-largest shareholder, with a 2.7% stake, has called for the company to split its volatile materials business from more stable sectors such as agriculture, nutrition and health, and industrial biosciences.

DuPont has in turn said Peltz was “blatantly wrong in terms of both the time period and the stock appreciation” in his comments about its performance.

Earlier this week, Fortune’s Stephen Gandel published a behind-the-scenes look at the battle royale between the chemical giant and hedge fund Trian.

DuPont activist battle spreads from Wall Street to academia

In the past week, the fight over the future of chemical giant DuPont DD has brewed up a spat between a Yale University professor and the activist trying to force his way onto DuPont’s board. Yale management guru Jeffrey Sonnenfeld has told former corporate raider and hedge fund manager Nelson Peltz to stop telling members of the media to write articles questioning Sonnenfeld’s integrity. Peltz has countered that Sonnenfeld has been spreading misleading information about his fund’s performance.

The brawl has led to CNBC interviews from both sides, dueling letters to the editor in the Wall Street Journal, an article in the New York Post accusing Sonnenfeld of having financial ties to the CEOs he publicly defends, and coverage in Jewish Business News. High-voltage Fox Business correspondent Charlie Gasparino weighed in on the “fat cat, cat fight” as well.

The dispute began on April 1, when the Wall Street Journal published an op-ed by Sonnenfeld pointing out the poor performance of shareholder activist hedge funds. The article’s headline suggested it was a critique of activist funds in general, but a good portion of the article—five out of the 12 paragraphs—focused on Nelson Peltz and his hedge fund, Trian Partners. Sonnenfeld criticized Trian’s investing performance over the past four years, saying it underperformed both the market and DuPont, which Peltz has been criticizing.

Sonnenfeld said that several companies appear to have performed worse once a Trian representative joined their board. One company, Chemtura, ended up in bankruptcy. Another company, financial firm State Street, rejected Trian’s demands that they receive a board seat and that the company be broken up, and it has gone on to do just fine, Sonnenfeld wrote, outperforming the market during the past four years. Peltz and Trian have proposed similar measures at DuPont.

“Clearly, this undermines Mr. Peltz’s argument that DuPont’s board needs Trian and Mr. Peltz to drive better returns,” wrote Sonnenfeld. The Yale professor, who is also a columnist for Fortune, called Peltz’s campaign against DuPont “costly,” “distracting,” and focused on “short-term gains.”

The next day, both Sonnenfeld and Peltz appeared on CNBC in separate interviews. Peltz said that the “professor should do some more digging” and get his facts straight. The investor also called Sonnenfeld’s numbers “cherry-picked” and wrong. Peltz said his investment firm had returned 137% since its founding in late 2005, which far outperformed the market during the same time. He also said on air that Trian’s performance was 34 percentage points better than the S&P 500 during that same period, a figure that Peltz had to later restate to the SEC in a filing. Trian’s performance was only 29 percentage points better than the S&P 500.

The squabble didn’t end there. Last week, the New York Post published an article suggesting that Sonnenfeld regularly comes to the public defense of CEOs or companies that have financial ties to his Chief Executive Leadership Institute, a Yale non-profit that gives out awards and hosts conferences for top executives. The article claimed that Sonnenfeld doesn’t disclose those ties. The Jewish Business News, a website, followed with a report titled “Murdoch Outlet Coming To Aid Of Nelson Peltz In His War Against Prof. Jeffrey Sonnenfeld,” though the article admitted it had no evidence that Peltz had any connection to the NY Post piece.

The NY Post cited DuPont as an example in which Sonnenfeld had defended a company and its CEO for which he had ties. But DuPont has never given money to Sonnenfeld’s institute. In December 2013, Yale’s Chief Executive Leadership Institute gave DuPont CEO Ellen Kullman a leadership award. Coming to the defense of an executive who Sonnenfeld’s institute has already deemed a top leader doesn’t seem like a conflict.

Sonnenfeld says dozens of companies have sponsored his institute over the years. He says that he has publicly supported the CEOs of some of the companies that have sponsored his events when they are under scrutiny in the news. And Sonnenfeld says he has “walked out on a limb” for a number of CEOs who have never had any ties to his institute.

For instance, Sonnenfeld said he has been critical of Hewlett-Packard, giving Carly Fiorina low grades as a CEO and calling the pay package for her successor Mark Hurd “a ‘damning indictment’ of CEO hiring contracts,” in the Seattle Times in 2010. Hewlett-Packard has been a sponsor of Sonnenfeld’s non-profit in the past. Although Sonnenfeld did come to HP’s defense when its board suddenly decided to fire Hurd after allegations that he had had an inappropriate relationship with an “adult” actress HP had hired to act as a hostess at client events.

“There is no correlation between the people I will speak out in defense of and of those that I criticize with a participation in our institute,” says Sonnenfeld.

Sonnenfeld says he has written numerous articles criticizing activist hedge fund managers, including Peltz, in the past. He says he had no contact with DuPont or Kullman about the WSJ op-ed before it was published. But, weeks before, Fortune received a spreadsheet from a source close to DuPont with some of the data that Sonnenfeld cited in his WSJ article. Sonnenfeld says the data was prepared by one of his own researchers and that he had been circulating it for months before he used it in the op-ed. The spreadsheet Fortune received did not cite Sonnenfeld as the source.

Trian and Peltz declined to comment for this story.

Sonnenfeld says that Peltz had targeted him privately even before he wrote the editorial. Starting earlier this year, Sonnenfeld says he had received messages from friends and colleagues that Peltz was looking to have a meeting with Sonnenfeld to seek his support in Peltz’s proxy fight with DuPont. Peltz is trying to get four representatives elected to the chemical company’s board, including himself, as part of an effort to break up the company. DuPont has resisted.

Peltz and Sonnenfeld had scheduled a lunch before Sonnenfeld published the WSJ op-ed. Peltz cancelled the lunch after the op-ed came out. Since the op-ed, Sonnenfeld says he has heard from acquaintances that Peltz is looking for a way to “neutralize” Sonnenfeld. Sonnenfeld jokes that his wife has had him starting the car on his own recently. But Sonnenfeld admits Peltz was likely speaking metaphorically.

Next week, proxy advisory firms Glass Lewis and ISS are likely to advise shareholders on whether shareholders should vote with DuPont for its board of directors, or whether shareholders should elect Trian’s four proposed dissonant directors, giving partial control of the company’s board to Peltz’s fund. DuPont’s annual shareholder meeting, where the vote will take place, is scheduled for May 13. Expect more fireworks before then.

Activist leads America’s biggest iron miner out of Ring of Fire, but not danger

These days, activist investors paint themselves as Wall Street’s turnaround specialists. Activists’ track record at getting companies to boost their share buyback programs, hand over board seats, or put themselves up for sale has been impressive. But when it comes to actually turning around a troubled company, or steering a company away from trouble, the jury on activism is still out.

Last July, activist hedge fund Casablanca Capital won control of the board of mining company Cliffs Natural Resources CLF after a six-month proxy fight. Days later, the hedge fund installed a new CEO and said that it had a new strategy to increase shareholder value. Eight-and-a-half months later, Cliffs’ stock has plunged 69%. So much for increasing shareholder value.

To be sure, Casablanca’s biggest problem has been commodities prices, which are out of the hedge fund’s control. Cliffs is the largest U.S. miner of iron. And iron prices in 2014 fell nearly 50% in 2014. That drop has taken Cliffs’ cashflow with it.

But Cliffs was also over leveraged. And it may have tried to do too much too soon. The hedge fund may have also underestimated how hard it would be to compete against its larger and more diversified competitors, such as Rio Tinta Group and BHP Billiton.

Cliff’s new CEO, Lourenco Goncalves, has put in place a plan to sell off assets to generate cash or close mines that have been losing money. Cliffs has been looking to sell most of its coal assets. But such sales have gone slowly, and many of the deals haven’t generated a lot of cash. In March, for instance, Cliffs reached a deal to sell its chromite mines in Northern Ontario’s so-called Ring of Fire region for $20 million, or about 4% of the $550 million Cliffs has spent to acquire the mines.

Closing plants have proven expensive, too, and such efforts have put a short-term strain on the company. In November, Cliffs decided to close a money-losing Canadian iron ore mine in Bloom Lake. The company said closing the mine would cost $650 million to $700 million, but a bankruptcy proceeding for the assets may reduce the cost. “We were going through chemotherapy and that didn’t do it. Now, the [cancerous] limb has been cut off,” Goncalves said in an interview at the time.

The moves have made investors nervous about the company’s cash problems. Investors have been pulling out of the company’s debt as well as its stock. And one bank sued the company for $53 million over a disagreement on its debt terms. The company says it hasn’t missed a payment.

As activists have become more active, they are ending up in charge more often, and all of a sudden they are becoming the ones that need to pull off corporate turnarounds. Not all of the situations have gone well. In 2010, Pershing Square’s Bill Ackman started buying up shares of JCPenney. He installed former Apple executive Ron Johnson as CEO and said a turnaround was in the works. Three years later, Johnson was gone, and so was Ackman, who sold off his stake in the retailer, swallowing a $500 million loss in the process.

Other deals have gone better. Activist shareholder Jeff Smith and his hedge fund Starboard Value won all the board seats at restaurant chain Darden last fall. In March, the company reported that sales rose 7% and adjusted earnings were up almost 40%. The company beat analysts’ expectations.

Cliffs is showing signs of improvement as well. In late March, the company completed a $540 million junk bond offering. It also convinced bondholders of more than $650 million of unsecured notes to swap their bonds for lower debt that has a better chance of getting paid back in a bankruptcy. The new bonds have lower interest rates. CEO Goncalves says the two debt deals will give the company at least another two years to weather low commodities prices and pull off a turnaround. Shares of the company jumped 12% in one day on news of the debt deals. So Casablanca’s Cliffs turnaround might still work out. But, at least so far, the activist hedge fund has dug a pretty big hole that it still needs to find a way out of.